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18.01.2012

World Bank Report: Getting Electricity

An indicator set from the Doing Business* project at the World Bank/IFC

AUTHOR: Susanne Szymanski

Electricity matters for private businesses, along with other infrastructure services such as roads, water and telecommunications. Where the quality and accessibility of infrastructure services are good, they encourage investment, productivity and growth. But where they are poor, companies’ productivity and growth suffer. World Bank Enterprise Surveys (2006-10) in 109 economies show that firms consider electricity one of the biggest constraints to their business - 14.5% of managers consider electricity the most serious constraint, while 15.9% consider access to finance the most serious (www.enterprisesurveys.org).

The Doing Business project of the World Bank/IFC has 8 years of experience in analyzing the real implications of the interactions of private businesses with government agencies. The “Getting Electricity” indicator aims to illustrate the implications for entrepreneurs of weak commercial services by distribution companies. Consistent and objective data on connection services can inform utilities, regulators and governments seeking to strengthen sector performance, and serve as an input for research on links to economic outcomes.

The “Getting Electricity” indicator records all procedures required for a business to obtain a permanent electricity connection and supply for a standardized warehouse. These procedures include applications and contracts with electricity utilities, all necessary clearances from other agencies and the external and final connection works. Data are collected from the electricity distribution utility, then completed and verified by independent professionals such as electricians, electrical engineers, electrical contractors and construction companies. In some cases regulatory agencies are also contacted. The electricity distribution utility surveyed is the one serving the area (or areas) of the main business city of a country in which warehouses are typically located. If there is a choice of distribution utilities, the one serving the largest number of customers is selected.

Electricity services are among the most regulated areas of economic activity. The connection process is governed by laws and regulations covering quality of service, general safety, technical standards, procurement practices and internal wiring installations. And it involves institutions including utilities, municipalities, testing agencies, transport agencies, regulatory agencies and agencies responsible for safety controls. Doing Business gives insights into the regulatory aspects surrounding electricity connections and measures how such regulations and institutions affect businesses when getting a new connection. Doing Business can help identify the bottlenecks in a connection process.

The tables below show which economies make it easy to get electricity and where the process can be more efficient:

Table 1: Where is getting electricity easy — and where not?

a. Rankings are the simple average of the economy’s percentile rankings on the procedures, time and cost to get an electricity connection.
Source: Doing Business database.

Getting an electricity connection is easiest in Iceland, where it takes 4 procedures and 22 days, and Germany, where it takes 3 procedures and 17 days (table 1). In Bulgaria it takes 6 procedures and 130 days to get a new electricity connection for a warehouse with the distribution utility CEZ Distribution Bulgaria AD. The utility usually carries out the external connection works, however the electrical contractor of the customer has to prepare the design for the connection and usually purchases the necessary material himself.

In economies where the process is most efficient, requiring fewer interactions of the customer with authorities and less time, the utilities often carry out the external connection works themselves. As part of this, they obtain the necessary approvals, streamlining procedures with other agencies. Economies where getting electricity is easy have several good practices in common. Among the most effective and common features have been streamlining procedures with public agencies or within the utility, regulating the electrical profession to ensure the quality of internal wiring, increasing the transparency of the connection cost and lessening the burden of security deposits (table 2).

Table 2: Good practices around the world in making it easy to get an electricity connection

Efficient utilities make it easy for customers to find out what they need to know. They post all the necessary information about procedures and paperwork for new connections in their website, in their office or in other public offices. Utilities in OECD-high income economies and in Eastern Europe and Central Asia make it easier for customers to find information on connection fees than those in other regions (figure 1). This is the case for Bulgaria as well. Information on structure of connection charges is easily accessible on the utility’s website and in hardcopy at the utility.

Challenges in getting an electricity connection vary across regions. The process is easiest on average in OECD high-income economies (table 3). Procedures between the utility and other public agencies are streamlined, and utilities usually have enough capacity to accommodate additional demand with a simple network extension. The connection process is most complex in Eastern Europe and Central Asia. There, connection works and design are usually outsourced by the utility to private electrical contractors and design companies, but then have to be approved and inspected by multiple public agencies, including the utility.

A closer look to the Europe and Central Asia region shows which economies make it easier to obtain an electricity connection and where the process could be more efficient:

Table 4: Procedures and Time

Source: Doing Business database

The relatively long time in Bulgaria is mostly due to the fact that the customer has to submit an application for a preliminary contract with CEZ Distribution Bulgaria, hire an electrical contractor to prepare the design for the connection and then submit application for conclusion of contract with the utility and await final contract and approval of design. This process takes an estimated 80 days.

The following chart illustrates the process of getting electricity with the help of the example of Tajikistan showing the typical procedures that are required by a customer when he wishes to obtain a new electricity connection:

Some of the main findings for Eastern Europe and Central Asia show that:

The higher the income groups of countries, the lower the average number of procedures to obtain an electricity connection. Similarly, the average costs in terms of % of GNI per capita decrease with the higher income groups.

More utilities outsource external connection works in Eastern Europe and Central Asia than in other regions. However, in the low income (The categorization of countries by income group follows the definition of the World Bank Group ) and lower middle income economies of the region (for example Georgia, Moldova, Uzbekistan), the external connection works are primarily conducted by a private electrical contractor hired by the customer, while in half of the high and upper middle income economies the utility is performing the external connection works (for example Bulgaria, Croatia).

Connection delays and number of procedures increase where customers face multiple inspections and approvals and opportunities are missed for streamlining, especially after the external connection works are completed. For example, in Ukraine there are more than two inspections at the end of the external connection works while in Albania and Bulgaria there are no separate procedures for inspections after completion of works and the electricity starts flowing in the next step.

Unlike utilities in other regions, utilities in Eastern Europe and Central Asia rarely ask their customers for a security deposit. Connection cost can have many components, such as standard fees, variable costs for labor and material, payments to other public agencies for inspections and permits and security deposits as guarantee against nonpayment. Security deposits can pose a big financial burden on the customer because most utilities hold the deposit until the end of the contract and repay it without interest. They are particularly common in Latin America and the Caribbean and in East and South Asia. In contrast, security deposits are rare in Eastern Europe and Central Asia and thus do not add additional financial burden for the customer when obtaining a new electricity connection.

* Doing Business provides indicators of government regulation of business across 183 economies. The project currently covers 10 areas of regulation—from starting to closing a business. Doing Business, in capturing some key dimensions of regulatory regimes, has been found useful for benchmarking, which can expose potential challenges and identify where policy makers might look for lessons and good practices._____________

Susanne Szymanski is Private Sector Development Specialist at the Doing Business team of the World Bank/IFC. The opinions expressed in this article do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work.